The Baumgertner Affair: an Oligarchic Win-Win

3 December 2013

A nearly four month long “potassium war” between Minsk and Moscow has come to its logical conclusion. It has provided another example of Russia provoking Belarus' president and then quietly accommodating him.

As Uralkali manager Vladislav Baumgertner found himself back in Moscow,...

A nearly four month long “potassium war” between Minsk and Moscow has come to its logical conclusion. It has provided another example of Russia provoking Belarus' president and then quietly accommodating him.

As Uralkali manager Vladislav Baumgertner found himself back in Moscow, both Lukashenka and Putin have reason to celebrate their under-the-table potash deal. The Kremlin has successfully navigated yet another nagging conflict with its problematic ally, while Lukashenka has eliminated a serious economic threat to his power, a conflict that was created by a now-disgraced Russian oligarch.

History of the potassium dispute

The potassium conflict between Russia and Belarus broke out in July 2013. Uralkali, the largest Russian potassium producer that was controlled by the oligarch Suleyman Kerimov, broke off its consortium with the state-owned Belarusian potassium monopoly Belaruskali on 29 July.

The reason for the break-up turned out to be the incompatibility of each companies' respective sales strategies, as both accused the other of selling potash bypassing their agreed upon joint sales channel. Despite the increasing competition on the global potassium market, Belaruskali insisted on maintaining high sales prices. Uralkali, which controlled the sales channels of the consortium, insisted on lowering the sales price and planned to compensate their losses by increasing the amount of potash mined.

In the wake of the break-up of the consortium, which controlled over 40% of world potassium sales, the global potassium market has slumped. Major potash consumers in India, China and Brazil postponed their purchase orders due to market instability and expectations that potash prices would soon start to plummet. According to Bloomberg, third-quarter sales of Potash Corp., the largest competitor of Belaruskali, fell 29 percent.

In response to Uralkali’s move, the Belarusian Prime Minister Mikhail Miasnikovich invited a high profile Russian delegation to discuss the potassium affair. On August 26, Baumgertner arrived in Minsk alone and, following a heated conversation with Miasnikovich, was arrested and put in a high-security KGB jail.

Baumgertner: hostage or pawn?

Lukashenka’s decision to imprison a prominent Russian manager seemed erratic and inflammatory. However, the Kremlin reacted in a surprisingly restrained way. This happened for two major reasons.

First, Moscow realised that Kerimov’s desire for higher and quicker profit spelled political trouble for Lukashenka. The export of potassium, along with oil refinement, remain the two main pillars of the contemporary Belarusian economy. In 2012, the net profit of Belaruskali exceeded $770m, a company that provided nearly 19,000 working places. The disruption of potassium exports would have devastating consequences for the Belarusian economy and constitute a direct threat to Lukashenka’s power.

Vladimir Putin learned a bitter lesson of what precisely a cornered Lukashenka is capable of during Read more

However, Vladimir Putin learned a bitter lesson of what precisely a cornered Lukashenka is capable of during the 2010 summer time gas war, when Russia suffered serious image damage internationally and seriously faltering relations with Belarus. This explains the Russian president’s reaction to his October meeting with Lukashenka, where Putin claimed he “wanted to solve the problem, not [reach a] deadlock, which can easily happen if we start an uproar [over the issue].”

Second, and perhaps equally important, Lukashenka has proven to actually possess the evidence necessary to prosecute Uralkali’s management. In another aggressive move, he made the evidence public and requested Interpol to issue arrest warrants against Uralkali’s top management. On November 22 the Russian prosecutor’s office ultimately brought forth charges against Baumgertner after Belarus' concerted campaign.

In search of a solution

Baumgertner’s arrest caused a stalemate. Lukashenka craved personal vengeance against Kerimov, sought guarantees against a repeat of his tactics and demanded compensation for Belaruskali’s losses. On October 11, during an interview to Russian journalists, the Belarusian president named the nationalisation of Uralkali as his preferred option.

The Kremlin, on the other hand, had different ideas. On September 13, a leak that made international headlines announced the purchase of Kerimov’s Uralkali shares by banker Vladimir Kogan, a Putin associate. This solution satisfied no one. Kerimov deemed the proposed purchase price of $3.7bn too low. Lukashenka lacked guarantees that Uralkali would not again become the target of speculative deals.

However, the deteriorating economic condition of Belaruskali undermined Lukashenka’s bargaining power. The company lacked a sales network and faced the potential defection of its top management. As a result, in September 2013 Belaruskali’s potassium production plummeted 44.5% to September 2012. A year-to-year decline in October 2013 constituted a weighty14.2%. This prompted Lukashenka to seek a compromise.

Striking a deal

Both sides reached a deal in November. Kerimov’s share in Uralkali would be purchased by Mikhail Prokhorov, who, like Kerimov, is close to the Medvedev clan. This way its most important mining asset remains in its pool of resources. Besides, Prokhorov is seen as a long-term investor who has enough of his own capital to finance the deal.

Lukashenka found the guarantor for his side of the deal in Dmitry Mazepin, the owner of the second largest producer of nitrogen fertilisers in Russia. Mazepin intends to buy the shares of the minor partners of Kerimov – Filaret Galchev and Anatoly Skurov, which come to a total of almost 12% of Uralkali’s stock, plus an additional 8% from unnamed holders. With nearly 20% of stock in hand, the oligarch will de facto call the shots in Uralkali, as Prokhorov lacks experience in the mining business.

A native of Minsk, Mazepin started as a Belarusian bank manager in the early 1990s, later moving to Russia to get into the oil and mining business. Lukashenka is looking to him to secure the terms of the deal in the long run and oversee the rapprochement between Uralkali and Belaruskali.

Back to the potash business as usual?

There is little doubt that the new owners of Uralkali will try to reverse the damage done by the potash conflict and restore the broken consortium. Despite this, Belaruskali will hardly repeat its streak of extremely high profits that it enjoyed in the 2000s.

As the global potash market is becoming more competitive, the old strategy of limiting supply to maintain high prices will give way to a more open market, meaning falling profit margins. Neither will the new consortium be a carbon copy of the old one.

As Uralkali has emerged out of the potassium conflict relatively unscathed, it will inevitably act as the leading partner in the consortium. And as the economic situation in Belarus deteriorates, the next big thing in the potassium market may be the takeover bid for Belaruskali by its resurgent consortium partner.

In the last week a number of events on Belarus took place alongside the Vilnius Summit. BўROOM, Reality Check gathered experts, political figures and activists to discuss various issue on Belarusian civil society.

Eco-workshops for children launched in Minsk. Teachers teach young Belarusians on green consumption of energy. Belarusian Association of Journalists revealed the preliminary results of its survey – 50 journalists fell under police detention in 2013.

Two years have already passed since politically motivated verdict on Ales Bialiacki.

The Vilnius Summit and Belarus

BўROOM in Vilnius. On 28-29 November a creative civic space BўROOM was held in Vilnius. Opened by Vice-Speaker of the Lithuanian Parliament, Petras Austrevicius, BўROOM run in parallel with the Vilnius Eastern Partnership Summit to attract local, Belarusian and international attention to Belarus. The photo exhibition by Belarus Press Photo, civil society Fair, actual roundtable discussions, an official EaP CSF side-event on human rights issues in Belarus, informal chats with Belarusian activists, national cuisine were open to anyone offline and via broadcasting live by Euroradio.

EaP Civil Society Conference in Vilnius. Civil Society Conference “Eastern Partnership Reality Check: Political Challenges and Future Agenda for Civil Society” was held on 27-29 November in Vilnius, as an official event by the Lithuanian Presidency of the EU Council. The event brought together civil society leaders from the EaP countries (including Belarus) and the European Union, as well as distinguished political figures and public activists.

Statement of the Belarusian National Platform of support of the Ukrainian partners. On 26 November the Belarusian National Platform of EaP CSF issued an appeal to express the support for the Ukrainian CSOs which speak in favour of further European integration of Ukraine. The signers expressed sincere solidarity and support to Ukrainian National Platform and in through it – to all the Ukrainian CSOs actively working for the benefits of their country towards European integration.

Civil Society Activities

Study visit on adult education. On 18-21 November ten representatives of Belarusian civil society organisations working in the field of adult education took part in a training visit to Lithuania. The visit was organised by the Association for Life Long Education (ALLE) to establish contacts with the Lithuanian providers in this field.

Open Libraries in Barysaŭ. In November, three apartment houses in different areas of Byrasaŭ, Minsk oblast’, set up “Open Libraries” in the halls. The idea to organise residents’ communication in such an interesting and unusual form belongs to the local Pravincyja women’s association.

Eco-workshops for children in Minsk. This is a new joint project of alumni of the School of environmental activist (by Green Alliance network), EcoDom NGO and the Centre for Environmental Solutions with the support of the Ў Gallery. The first meeting was devoted to green consumption. In a very simple and fun way teachers together with volunteers told to children how not to harm the environment and human health, how to save water, energy and how to choose healthy products in the store.

Inclusion can become a mainstream. On 11-12 November the UNDP office in Minsk hosted a workshop "An inclusive development agenda after 2015: the practical prospects for people with disabilities in Belarus" attended by representatives of national and international organisations, people with disabilities, foreign experts. On 14 November Association for Life Long Education (ALLE) together with the Office for the Rights of People with Disabilities conducted a roundtable "Inclusion in non-formal education" aimed to develop practical recommendations for CSOs to adopt an inclusion principle in their educational programs.

Study visit on national security. On 7-10 November Belarus Security Blog in cooperation with the Estonian CSOs organised a study visit to Estonia. The visit aimed to study the Estonian experience in the organisation of national defence and civilian control over it. The Belarusian activists had a series of meetings with representatives of the Defence Forces, representatives of political parties and academic community of Estonia.

GPSA 2nd Call for Proposals. The Global Partnership for Social Accountability announces its 2nd Call for Proposals. The Call for Proposals is open to CSOs and CSO networks based and operating in any of 33 eligible countries, including Belarus. Grant amounts will range from $500,000 to $1,000,000. Deadline to submit proposals is on 6 January 2014.

Global Fund to provide $9 million to fight tuberculosis in Belarus. The UN-backed Global Fund to Fight AIDS, Tuberculosis and Malaria will provide a grant of $9,080,000 to Belarus to finance the second stage of the Stop TB Strategy. An agreement to the effect was signed on 27 November in Minsk by Belarusian Deputy Health Minister Ihar Hayewski; Sanaka Samarasinha, the UN Development Program’s resident representative in Belarus; and Yawhen Spyavak, an HIV-positive representative of civil society.

Interaction between State and Civil Society

Ales Bialiacki: Two years since politically motivated verdict. On 24 November 2011, the Court of Minsk’s Pershamaiski district convicted Ales Bialiatski, the leader of the Human Rights Centre "Viasna". Ales Bialiacki was found guilty in tax evasion on a large scale and was sentenced to imprisonment in a high security penal colony for a period of 4.5 years and a confiscation of property. On 25 November Ambassador Janez Lenarčič, Director of the OSCE Office for Democratic Institutions and Human Rights (ODIHR), reminded the Belarusian authorities of previous calls by OSCE Chairpersons-in-Office for the release of human rights defender Ales Bialiacki and added his voice to theirs, calling Bialiacki’s case a violation of OSCE commitments.

Independent expert on state TV. On 25 November a national state-run TV ONT in a talk-show program “Pozitsya” by Vadim Gigin discussed a topic on relations between the EU and Belarus, namely, what impedes cooperation and how to establish a productive dialogue. Both official and independent experts, including Denis Melyantsov, a senior analyst of the Belarusian Institute for Strategic Studies (BISS), were invited to participate in the discussion.

BAJ discusses how to protect journalists. In 2013 about 50 Belarusian journalists fell under police detention, including four administrative arrests – the Belarusian Association of Journalists (BAJ) sums up the preliminary results of the year.

Belarus Digest prepared this overview on the basis of materials provided by Pact. This digest attempts to give a richer picture of the recent political and civil society events in Belarus. It often goes beyond the hot stories already available in English-language media.